In: Finance
Lane Industries is considering three independent projects, each of which requires a $2.5 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:
Project H (high risk): | Cost of capital = 13% | IRR = 15% |
Project M (medium risk): | Cost of capital = 10% | IRR = 8% |
Project L (low risk): | Cost of capital = 8% | IRR = 9% |
Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $3,100,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places.